We recently reiterated our Neutral recommendation on
Life Technologies Corporation
), a global biotechnology tools company. Following the
announcement of its impending takeover by Thermo Fisher, Life
Technologies' shares have already reached its justified high and
as a result, the further upward potential of the stock seems
restricted. The stock currently carries a Zacks Rank #3
Why at Neutral?
Life Technologies reported a mixed second quarter 2013 with
adjusted EPS of 98 cents, 2 cents ahead of the Zacks Consensus
Estimate as well as the year-ago adjusted EPS. Although revenues
increased 1.1% at CER to $943.6 million, it remained below the
Zacks Consensus Estimate of $952 million.
Given Life Technologies' expansive line of consumables for
genomic, and molecular and cell biology, the acquisition by
Thermo Fisher will effortlessly strengthen the combined company's
global foothold and commercial reach. As part of the larger
Thermo Fisher group, we expect improved revenues and cost
synergies for both the companies.
Life Technologies enjoys a strong position in the life
sciences market and we are impressed with the strong momentum of
its Ion Torrent franchise. Moreover, the company is working on
expanding its portfolio with several product launches.
In Jul 2013, Life Technologies entered into a five-year
agreement with the Food and Drug Administration (FDA) to
accelerate and advance food safety testing of
, two foodborne contaminants. Recently, the company entered into
a collaboration agreement with RainTree Oncology Services to work
on personalized care for cancer patients.
In addition, the recent acquisitions of BAC BV, Navigenics,
Pinpoint Genomics and Compendia along with new distribution
agreements in China, South Korea and Chile would enable LIFE to
strengthen its diagnostics franchise and extend its footprint in
However, Life Technology's exposure to the U.S. government
funding lies between 10% and 15%, depending on the level of
funding. The recent sequestration cuts (implemented with effect
from Jan 2, 2013) that curbed the NIH (National Institutes of
Health) budget by 8% are expected to restrict the company from
opting for medical innovations.
The company earns 50% of its revenues from international
operations, which exposes it to unfavorable currency movement.
Based on the prevailing rate as on Jun 30, 2013, currency is
expected to have a negative impact of $75 million on fiscal 2013
revenues and 17 cents on the yearly-adjusted EPS.
Other Stocks to Consider
While we prefer to remain on the sidelines on Life
Technologies, other medical device stocks worth a look are
Gilead Sciences Inc.
). All these stocks carry a Zacks Rank #1 (Strong Buy).
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